United States District Court, M.D. Pennsylvania
PENNSYLVANIA PROFESSIONAL LIABILITY JOINT UNDERWRITING ASSOCIATION, Plaintiff
TOM, in his Official Capacity as Governor of the Commonwealth of Pennsylvania, et al., Defendants
Christopher C. Conner, Chief Judge
17 2018 this court entered judgment in Pennsylvania
Professional Liability Joint Underwriting Ass'n v Wolf
(“JUA I”) No. 1:17-CV-2041 2018 WL 2263549
___ F.Supp.3d ___ (MD Pa 2018) declaring portions of Act 44
of 2017 PL 725 No. 44 (“Act 44”) to be violative
of the Takings Clause of the Fifth Amendment to the United
States Constitution We held therein that by virtue of the
breadth of its enabling legislation the Pennsylvania
Professional Liability Joint Underwriting Association
(“Joint Underwriting Association” or
“Association”) is a private entity its assets are
private property and the Commonwealth thus cannot expropriate
the surplus funds held in the Association's coffers We
permanently enjoined the Commonwealth from enforcing the
of 2018 No. 41 2018 Pa Laws (June 22 2018) (“Act
41”) is the General Assembly's answer to JUA I
Utilizing our earlier analysis as a blueprint Act 41
endeavors to avoid the constitutional infirmities of Act 44
Specifically it purports to, inter alia, fold the
nonprofit Joint Underwriting Association into the
Commonwealth's Insurance Department
(“Department”), shift control of the Association
from its current member-led board to a board comprised of
political appointees, oust the Association's president in
favor of a new executive director hired by the
Commonwealth's Insurance Commissioner
(“Commissioner”), and mandate transfer of all of
the Association's documents, files, and assets to the
Department within 30 days of the Act's effective date.
The Association asks the court to enjoin enforcement of the
operative provisions of Act 41.
Joint Underwriting Association commenced this lawsuit with
the filing of a verified complaint on June 28, 2018,
subsequently filing an amended complaint on July 3, 2018.
Therein, the Association challenges the constitutionality of
Act 41 under 42 U.S.C. § 1983. The Association asserts
that Act 41 violates the Substantive Due Process Clause
(Count I), the Takings Clause (Count II), and the Contract
Clause (Count III), and seeks declaratory and injunctive
relief pursuant to Section 1983 and the Declaratory Judgment
Act, 28 U.S.C. § 2201 (Count IV). The Association
identifies as defendants Tom Wolf, Governor of the
Commonwealth; the General Assembly of the Commonwealth; the
elected leadership of both chambers of the General Assembly;
and Jessica K. Altman, Insurance Commissioner of
Pennsylvania. All defendants are sued in their respective
Association moved for a temporary restraining order and
preliminary injunction contemporaneously with the
commencement of this case. The court denied the request for
temporary restraining order and expedited proceedings on the
request for a preliminary injunction. The court heard
argument on the Association's motion on July 6, 2018. The
parties agreed during oral argument that, for purposes of
resolving the Association's motion, the factual record
developed in JUA I is stipulated into the record sub
judice. Accordingly, the findings of fact that follow
are adopted from the court's summary judgment opinion in
JUA I, with emphasis and reiteration of the facts most
pertinent to the Association's instant claims.
Findings of Fact
Joint Underwriting Association is a nonprofit association
organized under the laws of the Commonwealth of Pennsylvania.
See JUA I, 2018 WL 2263549, at *1. The General Assembly
created the Association in 1975 in response to a “hard
market” for medical malpractice insurance in the
Commonwealth. Id. The Association was initially
established and organized by the Pennsylvania Health Care
Services Malpractice Act of 1975, P.L. 390, No. 111
(“Act 111”). The General Assembly repealed Act
111 on March 20, 2002, replacing it with the Medical Care
Availability and Reduction of Error Act (“MCARE
Act”), 40 Pa. Stat. & Cons. Stat. Ann. §
1303.101 et seq.
The MCARE Act and the Joint Underwriting Association
MCARE Act is a sweeping piece of legislation, with an
overarching goal of ensuring a “comprehensive and
high-quality health care system” for the citizens of
the Commonwealth. Id. § 1303.102(1). Among
other things, the MCARE Act established the Medical Care
Availability and Reduction of Error Fund (“the MCARE
Fund”). See Id. §§ 1303.711-.716.
The General Assembly designed the MCARE Fund as a
“special fund” within the state treasury to be
administered by the Department. Id. §§
1303.712(a), -.713(a). The Fund provides a secondary layer of
medical professional liability coverage for physicians,
hospitals, and other health care providers in the
Commonwealth. See Id. § 1303.711(g). It is
funded primarily by annual assessments on health care
providers as a condition of practicing in the Commonwealth.
See Id. § 1303.712(d)(1).
MCARE Act continues the operation of the Joint Underwriting
Association. Id. § 1303.731(a). Unlike the
MCARE Fund, the General Assembly did not establish the
Association as a “special fund” or a traditional
agency within the Commonwealth's governmental structures.
See id.; cf. Id. §§ 1303.712(a), -.713(a).
Instead, the General Assembly “established” the
Association as “a nonprofit joint underwriting
association to be known as the Pennsylvania Professional
Liability Joint Underwriting Association.” Id.
§ 1303.731(a). Like its predecessor, see Act 111, §
802, the MCARE Act mandates membership in the Association for
insurers authorized to write medical professional liability
insurance in the Commonwealth, 40 Pa. Stat. & Cons. Stat.
Ann. § 1303.731(a).
MCARE Act requires the Association to offer medical
professional liability insurance to health care providers and
entities who “cannot conveniently obtain medical
professional liability insurance through ordinary methods at
rates not in excess of” rates applicable to those
similarly situated. Id. § 1303.732(a). The Act
sets forth broad parameters for achieving this objective,
tasking the Association to ensure that its insurance is
conveniently and expeditiously available, offered on
reasonable and not unfairly discriminatory terms, and subject
only to the payment of a premium for which payment plans must
be made available. Id. § 1303.732(b)(1)-(5).
Association, like other insurers in the Commonwealth, is
“supervised” by the Department through the
Commissioner. Id. § 1303.731(a); see, e.g.,
Id. §§ 221.1-a to -.15-a, 1181-99. The
MCARE Act prescribes four “duties” to the
Association. Id. § 1303.731(b). It requires the
Association to (1) submit a plan of operations to the
Commissioner for approval, (2) submit rates and any rate
modifications for Department approval, (3) offer insurance as
described supra, and (4) file its schedule of
occurrence rates with the Commissioner. See Id.
§ 1303.731(b)(1)-(4). Prior to enactment of Act 41, the
MCARE Act insulated the Commonwealth from the
Association's debts and liabilities. See Id.
MCARE Act provides that all “powers and duties”
of the Association “shall be vested in and exercised by
a board of directors.” Id. § 1303.731(a).
The board's composition, and all of the Association's
operative principles, are set forth in a plan of operations
developed by the Association with Department assistance and
approval. See JUA I, 2018 WL 2263549, at *3. The existing
plan establishes a 14-member board of directors, which
consists of the current Association president; eight
representatives of member companies chosen by member voting;
one agent or broker elected by members; and four health care
provider or general public representatives who may be
nominated by anyone and are appointed by the Commissioner.
Id. Under the plan, the Association may be dissolved
(1) “by operation of law, ” or (2) at the request
of its members, subject to Commissioner approval.
Id. The plan further provides that, “[u]pon
dissolution, all assets of the Association, from whatever
source, shall be distributed in such manner as the Board may
determine subject to the approval of the Commissioner.”
Joint Underwriting Association writes insurance policies
directly to its insured health care providers, and those
policyholders pay premiums directly to the Association.
Id. The Association is funded exclusively by
policyholder premiums and any investment income generated
therefrom. Id. It is not and has never been funded
by the Commonwealth, and it holds all premiums and investment
funds in private accounts in its own name. Id.
Association maintains contingency funds-its
“reserves” and its “surplus”-which
allow the Association to fulfill its insurance obligations in
the event of greater-than-anticipated claims or losses.
Id. An insurer's “reserves” are the
“best estimate of funds . . . need[ed] to pay for
claims that have been incurred but not yet paid.”
Id. Its “surplus” represents
“capital after all liabilities have been deducted from
assets.” Id. The surplus operates as a
“backstop” to ensure that unforeseen events do
not impede an insurer's ability to meet obligations to
its insureds. Id. As of December 31, 2016, the Joint
Underwriting Association maintained a surplus of
approximately $268, 124, 500. Id.
Act 85 of 2016
13, 2016, Governor Wolf signed into law Act 85 of 2016, P.L.
664, No. 85 (“Act 85”). Act 85 is wide-ranging in
scope, but its principal effect was to amend the General
Appropriation Act of 2016 and balance the Commonwealth's
budget. Act 85, § 1. Among other things, Act 85 provides
for certain transfers to the Commonwealth's General Fund.
See Id. § 1(7). Pertinent here, Section 18 of
Act 85 amends the Commonwealth's Fiscal Code to require a
$200, 000, 000 transfer to the General Fund from the Joint
Underwriting Association, repayable “over a five-year
period commencing July 1, 2018.” Id. §
Association did not transfer funds to the Commonwealth
pursuant to Act 85. On May 18, 2017, the Association
commenced a lawsuit, also pending before the undersigned,
challenging the constitutionality of Act 85. See Pa.
Prof'l Liab. Joint Underwriting Ass'n v. Albright,
No. 1:17-CV-886, Doc. 1 (M.D. Pa. May 18, 2017). The
lawsuit names Randy Albright in his official capacity as the
Commonwealth's Secretary of the Budget as the sole
defendant. At the parties' request, that litigation has
been held in abeyance pending resolution of appeals filed in
Act 44 of 2017
Wolf signed Act 44 into law on October 30, 2017, in another
attempt to bring balance to the state budget. Act 44, §
1. Therein, the General Assembly expressly repeals Act 85.
Id. § 13. Act 44, inter alia, amends
the Fiscal Code to include certain “findings”
concerning the Joint Underwriting Association's
relationship to the Commonwealth and the nature of its
unappropriated surplus. Id. § 1.3. Among other
things, the General Assembly “finds” in Act 44
that the Joint Underwriting Association is an
“instrumentality of the Commonwealth” and its
monies “belong to the Commonwealth.”
Id. Act 44 then mandates a monetary transfer from
the Association to the Commonwealth-“$200, 000, 000 to
the State Treasurer for deposit into the General